KSB

11-41306 Officer (Doc. # 161)

In Re Officer, 11-41306 (Bankr. D. Kan. Oct. 1, 2014) Doc. # 161

PDFClick here for the pdf document.


SO ORDERED.
SIGNED this 1st day of October, 2014.

 

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re: Case No. 11-41306
Thomas Andrew Officer, III Chapter 7
Tiffani Danielle Officer,

Debtors.

Order Granting Debtors’ Motion to Convert Case to Chapter 13 and
Denying the United States Trustee’s Motion to Dismiss


Debtors filed a chapter 13 bankruptcy petition and two years later converted
their case to one under chapter 7 of the Bankruptcy Code. Having subsequently
realized they are not eligible for a chapter 7 discharge, Debtors now seek to convert
their case again, this time back to chapter 13. The bankruptcy courts that have
analyzed whether a debtor can, under 11 U.S.C. § 706, reconvert a chapter 7 case to
a reorganization chapter are split, and that is true even in this District. I conclude that
§ 706 gives me the discretion to reconvert this chapter 7 case to chapter 13, and
because Debtors have shown that such reconversion is appropriate here, Debtors’

Case 11-41306 Doc# 161 Filed 10/01/14 Page 1 of 10


motion to convert to chapter 131 is granted, and the United States Trustee’s motion to
dismiss2 is denied.

I. Procedural and Factual Background
The following facts have been stipulated by the parties or are part of the record
in this case. Debtors Thomas and Tiffani Officer have had two bankruptcy cases prior
to the filing of their current case. Debtors filed a chapter 13 case (Case No. 01-40913)
on April 10, 2001, and it was dismissed on January 14, 2002. Debtors then filed a
chapter 7 case (Case No. 05-40033) on January 8, 2005, from which they received a
discharge on May 2, 2005.

Debtors filed their current chapter 13 petition and plan on August 12, 2011.
After resolution of objections to confirmation by the Trustee and one creditor, Debtors’
plan was amended on September 25, 2011 and November 27, 2011, and ultimately
confirmed on January 25, 2012. Debtors’ monthly plan payment was $1575. Due to a
misunderstanding about when the plan payment was due, Debtors were late on their
initial payment, and filed a motion to abate that payment.

During the course of the bankruptcy, one of the Debtors became unemployed at
least twice. During the first period of unemployment, Debtors moved to amend their
plan to surrender their home, and on October 11, 2012, an order was entered
permitting surrender and lowering Debtors’ monthly payment to $430.

1 Doc. 153.

2 Doc. 148.
-2


Case 11-41306 Doc# 161 Filed 10/01/14 Page 2 of 10


Almost two years later, during the second period of unemployment, Debtors
requested that their counsel convert their case to chapter 7. Debtors’ counsel reviewed
Debtors’ case for eligibility for discharge under chapter 7 and misread the filing date
of Debtors’ previous chapter 7 case. On August 11, 2014, Debtors filed a notice of
voluntary conversion of their case under chapter 13 to a case under chapter 7. Quickly
thereafter, the United States Trustee filed a motion to dismiss under 11 U.S.C. §
727(a)(8), arguing that Debtors were not eligible for another Chapter 7 discharge
because they received a discharge in a case commenced within eight years of the
current bankruptcy.

Prior to the filing of the notice of conversion, the unemployed Debtor regained
employment, although Debtors did not immediately report the re-employment to their
attorney. Upon receipt of the United States Trustee’s motion to dismiss, Debtors’
counsel realized he had misread the filing date of the prior bankruptcy. Debtors’
counsel then also learned that the unemployed Debtor was re-employed, resulting in
Debtors’ household income being in excess of the median income for a family of their
size. Debtors ultimately responded to the motion to dismiss by stating they would
convert their case again, this time back to a case under chapter 13. They then filed the
motion to convert that is the subject of this order.

This matter constitutes a core proceeding over which the Court has the
jurisdiction and authority to enter a final order.3

3 See 28 U.S.C. § 157(b)(2)(A) (stating that “matters concerning theadministration of the estate” are core proceedings); § 157(b)(1) (granting authority

-3


Case 11-41306 Doc# 161 Filed 10/01/14 Page 3 of 10


II. Analysis
Debtors’ motion to convert is filed pursuant to 11 U.S.C. § 706, which governs
conversion of a chapter 7 case to a case under another chapter. Section 706 states in
its entirety:

(a) The debtor may convert a case under this chapter to a case underchapter 11, 12, or 13 of this title at any time, if the case has not beenconverted under section 1112, 1208, or 1307 of this title. Any waiver ofthe right to convert a case under this subsection is unenforceable.
(b) On request of a party in interest and after notice and a hearing, thecourt may convert a case under this chapter to a case under chapter 11of this title at any time.
(c) The court may not convert a case under this chapter to a case underchapter 12 or 13 of this title unless the debtor requests or consents tosuch conversion.
(d) Notwithstanding any other provision of this section, a case may not beconverted to a case under another chapter of this title unless the debtormay be a debtor under such chapter.
Generally stated, § 706(a) gives a debtor the right to convert a chapter 7 case to a case
under chapter 11, 12, or 13 at any time, as long as the case commenced as one under
chapter 7 and was not previously converted from another chapter. Section 706(b) then
governs all other conversions from chapter 7, and permits a court, upon request from
a party in interest, to convert a chapter 7 case to another chapter. Section 706(c)
requires either a debtor’s request, or the debtor’s consent, before the debtor’s chapter
7 case can be converted to either chapter 12 or 13. And finally, § 706(d) reiterates that
a case cannot be converted to another chapter unless the debtor can be a debtor under

to bankruptcy judges to hear core proceedings).
-4


Case 11-41306 Doc# 161 Filed 10/01/14 Page 4 of 10


that chapter.

There have been two lines of cases interpreting § 706 and the ability of a debtor
to convert a previously converted case.4 Judge Nugent in In re Fry5 represents the first
line of cases in this District. The procedural set up in Fry is similar to that at hand: in
Fry, the debtor initially filed a chapter 13 petition but had difficulty making her
chapter 13 plan payments, and converted her case to one under chapter 7.6 After
converting, the United States Trustee filed a motion to dismiss because the debtor had
received a discharge in a prior chapter 7 case within the allowed time.7 The debtor then
moved to reconvert her case to chapter 13, which the chapter 13 trustee opposed,
arguing that § 706(a) barred the debtor from reconverting to chapter 13.8 Judge Nugent
noted the split in the bankruptcy court authority on this topic, stating:

Some courts hold that the debtor may only convert from chapter 7 tochapter 13 if the case has not been previously converted from chapter 13,
and bar[] the debtor from seeking any further reconversion. Others haveheld that while § 706(a) allows a debtor a one time ‘absolute’ right toconvert from chapter 7 to chapter 13, it does not bar a subsequent

4 A sample of cases outside this District permitting reconversion in theappropriate circumstances are: Povah v. Hansbury & Finn, Inc. (In re Povah), 455

B.R. 328 (Bankr. D. Mass. 2011); In re Johnson, 376 B.R. 763 (Bankr. D.N.M. 2007);
In re Anderson, 354 B.R. 766 (Bankr. D.S.C. 2006). Cases outside this Districtdenying reconversion are: In re Muth, 378 B.R. 302 (Bankr. D. Colo. 2007); In re
Hardin, 301 B.R. 298 (Bankr. C.D. Ill. 2003); In re Banks, 252 B.R. 399 (Bankr. E.D.
Mich. 2000).
5 Case No. 04-16887, 2008 WL 4682266 (Bankr. D. Kan. Oct. 14, 2008).
6 Id. at *1.
7 Id.
8 Id. at *1–2.


-5


Case 11-41306 Doc# 161 Filed 10/01/14 Page 5 of 10


discretionary conversion after notice and a hearing.”9
Judge Nugent sided with the line of cases holding that § 706(b) and (c) do not provide
the court a discretionary basis for the reconversion of a debtor’s chapter 7 case to
chapter 13, but only make clear that involuntary chapter 12 and 13 cases are
prohibited.10 Judge Nugent concluded that “[t]he language of § 706(a) clearly and
unambiguously states that a debtor may convert out of chapter 7 only if the case has
not been previously converted.”11

A more recent opinion, In re Bange,12 decided by Judge Somers, represents the
other line of thinking in this District. In Bange, the debtor originally filed a chapter 12
petition, and his case was converted to chapter 7.13 The court then assessed whether
it could convert the chapter 7 case back to a reorganization chapter case.14 Again, like
Judge Nugent had in Fry, Judge Somers recognized the two paths taken by bankruptcy
courts on this subsection under § 706. Judge Somers then reasoned:

[Section] 706(a) is phrased as a restriction on the debtor’s ability to

9 Id. at *2 (citing example cases).

10 Id.

11 Id. at *3. Although never discussed in the opinion, the facts of Frymaydemonstrate why Judge Nugent ruled the way he did. Judge Nugent referred to “aseries of motions to dismiss for delinquent plan payments” prior to the case’sconversion from chapter 13 to chapter 7, id.at *1, and there was no indication the
debtor in Frywould be successful if permitted to reconvert back to chapter 13.

12 Case No. 08-40156-7C, 2010 WL 3829632 (Bankr. D. Kan. Sept. 23, 2010).

13 Id. at *1.

14 Id. at *1–2.

-6


Case 11-41306 Doc# 161 Filed 10/01/14 Page 6 of 10


convert a case; it says nothing explicit about the court’s authority to doso. . . . Unlike subsection (a), [subsection (c)] is phrased as a limitation onthe bankruptcy court’s authority to convert a case. A leading bankruptcytreatise relies on this distinction to support the conclusion a court mayreconvert a case to a reorganization chapter. The wording of anothersubsection of § 706 supports the conclusion the identification of therelevant actor in subsections (a) and (c) was no accident. Section 706(d)
provides: “Notwithstanding any other provision of this section, a case maynot be converted to a case under another chapter of this title unless thedebtor may be a debtor under such chapter.” Unlike subsections (a) and(c), this provision is phrased as a limitation on any conversion, no matterwho is doing it. The Court concludes subsections (c) and (d) imposelimitations on its authority to convert a case, but subsection (a) does not.
Therefore, the Court joins those courts that have held a case previouslyconverted to Chapter 7 may nevertheless be reconverted to areorganization chapter. This result helps further the general bankruptcypolicy of encouraging debtors to choose to pay their debts to the extentthey can.15

Judge Somers ultimately concluded that reconversion to chapter 12 was appropriate

in that case.

Unfortunately, there are no Tenth Circuit or Tenth Circuit BAP cases discussing

this issue. In fact, there do not appear to be any appellate court decisions on this

matter. The parties are split, each urging opposite positions. The United States

Trustee relies on Fry to argue this case cannot be reconverted to chapter 13.16 Debtors

rely on Bange to argue that I have the discretion to allow reconversion, and that when

the reconversion would further the bankruptcy policy of allowing Debtors to pay their

creditors, the reconversion is justified.

15 Id. at *1 (internal footnotes omitted).

16 In response to Debtors’ motion to convert to chapter 13, the United States

Trustee merely argues that Debtors’ motion is moot, given the United States

Trustee’s motion to dismiss relying on Fry. Doc. 159.

-7


Case 11-41306 Doc# 161 Filed 10/01/14 Page 7 of 10


Because I find Judge Somers’ reasoning in Bange (and the line of cases in

agreement with Bange) more persuasive, I conclude that § 706 does not prohibit a

debtor from reconverting a chapter 7 case back to a reorganization chapter. Rather, I

find that the wording of § 706 gives me the discretion to determine whether

reconversion is appropriate upon a proper motion requesting same. I find persuasive

that § 706(a) refers to a debtor’s ability to convert his case, thereby placing limits on

a debtor’s ability to convert, while § 706(c)’s reference to the court’s conversion of a case

implies that judicial discretion and decision-making is allowed. Again, § 706(d)’s

restrictions on cases being converted reinforces my thinking that different types of

actors are at play in the different subsections of § 706. A leading bankruptcy treatise

underscores this conclusion. As stated in Collier on Bankruptcy:

A few courts have read [§ 706], and the absence of a specificauthorization for a motion to convert to . . . chapter 13 when there is noabsolute right to convert, to preclude reconversion to . . . chapter 13 aftera case has been converted from one of those chapters to chapter 7.
However, had Congress meant to bar such reconversions completely, itwould not have used the language it used. Unlike section 706(a), whichspeaks of the debtor converting a case when the debtor has a right toconvert, subsection 706(c), like subsection 706(b), speaks of the courtconverting the case. Both sections 706(b) and 706(c) refer to a decision ofthe court in its discretion, to permit conversion at the request of a party.
Section 706(c) serves simply to limit who may request conversion to . . .
chapter 13, permitting only the debtor to make such a request. If thecourt were not authorized to convert a case to chapter 13 in the firstplace, there would be no need for section 706(c). Therefore, the power ofthe court to convert a case to chapter 13 is implicit in section 706(c),
which limits that power.

Most courts have recognized that it would make little sense to denythe debtor any opportunity to convert back to . . . chapter 13 if the debtordecides an earlier conversion to chapter 7 was a mistake. While Congressdid not give debtors an absolute right to reconvert, so that debtors cannotfrustrate creditors by continually converting and reconverting, it did

-8


Case 11-41306 Doc# 161 Filed 10/01/14 Page 8 of 10


generally want to give debtors every opportunity to repay if they chose.
Moreover, a debtor who is denied the right to convert may still file achapter 13 case after the chapter 7 case is concluded, a fact recognized byeven those courts denying reconversion. . . . The courts permittingreconversion have properly recognized that the decision whether topermit reconversion should rest in the sound discretion of the court basedon what most inures to the benefit of the parties in interest. When noparty objects to the reconversion it should normally be granted.17

I agree with this assessment; I do not read § 706 as prohibiting me from exercising my
discretion to allow reconversion of a previously converted case back to chapter 13.
Rather, in the appropriate circumstances, and upon motion with an opportunity for
objection and hearing, such reconversion could be appropriate.

For courts following the Bange line of cases, the courts reiterate, however, that
discretion to permit reconversion should only be exercised in appropriate cases—the
debtor’s circumstances “must be closely scrutinized, and the debtor must also establish
both good faith and the feasibility of any plan of reorganization.”18 Here, the parties
have stipulated that the factors causing the first conversion—from chapter 13 to
chapter 7—were based on one Debtor’s loss of employment. That Debtor is now reemployed,
and is earning more that he was in his prior employment. The only missed
payment in this case resulted from a misunderstanding about the due date, and was
resolved with an abatement. In addition, during a prior period of unemployment,

17 6 Collier on Bankruptcy ¶ 706.04, at 706-10 to 706-11 (Alan N. Resnick &
Harry J. Sommer eds., 16th ed.) (internal footnotes omitted).

18 Povah v. Hansbury & Finn, Inc. (In re Povah), 455 B.R. 328, 341 (Bankr.

D. Mass. 2011). In Povah, the court held that the debtor had not carried her burden
to show that reconversion was appropriate, because she did not show that herchapter 13 case would be feasible. Id. at 342.
-9


Case 11-41306 Doc# 161 Filed 10/01/14 Page 9 of 10


Debtors surrendered their home and did what they needed to do in order to make their
chapter 13 plan work, showing their commitment to the chapter 13 repayment process.
Neither the United States Trustee, nor any other party, has argued that this
conversion would be in bad faith. I conclude, therefore, that Debtors have carried their
burden of proof to show that reconversion of their case to chapter 13 is appropriate.

III. Conclusion
Because I conclude that § 706 gives me the discretion to reconvert this chapter
7 case to chapter 13, and conclude that Debtors have met their burden to show that
such reconversion is appropriate under the facts of this case, Debtors’ motion to convert
to chapter 1319 is granted, and the United States Trustee’s motion to dismiss20 is
denied.

IT IS SO ORDERED.

# # #

19 Doc. 153.
20 Doc. 148.

-10


Case 11-41306 Doc# 161 Filed 10/01/14 Page 10 of 10

14-06014 The Barstow School, A Corporation v. Shojayi (Doc. # 36)

The Barstow School, A Corporation v. Shojayi, 14-06014 (Bankr. D. Kan. Sep. 9, 2014) Doc. # 36

PDFClick here for the pdf document.


SO ORDERED.
SIGNED this 9th day of September, 2014.

 

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:
Stephanie Marie Shojayi Case No. 13-23176
Chapter 7
Debtor.

The Barstow School,

Plaintiff,

vs. Adversary No. 14-6014

Stephanie Marie Shojayi,

Defendant.

Memorandum Opinion and Order Denying
Plaintiff’s Motion for Summary Judgment and Granting Summary
Judgment for Defendant


The issue I must decide is whether Congress intended to except from

Case 14-06014 Doc# 36 Filed 09/09/14 Page 1 of 15


discharge a debt in excess of $30,000 arising from a parent’s promise to pay
private school tuition for her young children who never then attended the
school. Because the debt does not constitute a loan under 11 U.S.C. §
523(a)(8)(A), the Court denies the creditor’s motion for summary judgment
and instead grants summary judgment to the debtor.1

I. Jurisdiction
Neither party disputes this Court’s jurisdiction, and the Court has
jurisdiction over this core proceeding under 28 U.S.C. § 157(b)(2)(I).2

II. Legal Standard
A court should grant summary judgment if there is no genuine issue of
material fact and the uncontroverted facts entitle the moving party to
judgment as a matter of law.3 An issue of fact is “genuine” if “‘the evidence is
such that a reasonable jury could return a verdict for the non-moving party.’”4
When the nonmoving party has failed to present sufficient evidence to allow a

1 Docs. 24 and 31. Although Defendant’s summary judgment motion wasrecently filed, counsel for both parties have waived the requisite response and replydeadlines allowed by D. Kan. LBR 7056.1(f) related to Defendant’s motion sincethey have fully briefed the issues.

2 28 U.S.C. § 157(b)(1) and § 1334(b).

3

Doe v. City of Albuquerque, 667 F.3d 1111, 1122 (10th Cir. 2012).

4

Thomas v. Metro. Life Ins. Co., 631 F.3d 1153, 1160 (10th Cir. 2011)
(quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).

-22


Case 14-06014 Doc# 36 Filed 09/09/14 Page 2 of 15


reasonable jury to return a verdict in their favor on an essential element of
his or her case with respect to which he or she has the burden of proof,

5

judgment as a matter of law is appropriate. On a motion for summaryjudgment, a court reviews the evidence and draws reasonable inferences

6

therefrom in the light most favorable to the nonmoving party. “Where, ashere, the parties file cross-motions for summary judgment, [the Court is]
entitled to assume that no evidence needs to be considered other than that
filed by the parties, but summary judgment is nevertheless inappropriate if
disputes remain as to material facts.”7

III. Uncontroverted Facts
Creditor, The Barstow School, operates a private school providing
primary education from preschool through grade twelve. The school is funded,
in large part, by the payment of tuition for attending students.

In January 2012, Defendant Stephanie Shojayi, the Debtor in the
underlying bankruptcy, signed enrollment contracts for the academic year
2012-2013 promising to pay Creditor the sum of $27,610 in tuition and fees
for her two children, who were going into kindergarten and second grade.

5

 City of Albuquerque, 667 F.3d at 1122.
6 Id.


7

James Barlow Family Ltd. P'ship v. David M. Munson, Inc., 132 F.3d 1316,
1319 (10th Cir. 1997) (citation omitted).

-33


Case 14-06014 Doc# 36 Filed 09/09/14 Page 3 of 15


Debtor acknowledges reading, understanding, and accepting the terms of the
contracts including her election of one of several payment plans available to
pay the tuition and fees. The contracts stated, “I agree to pay The Barstow
School the tuition amount for the entire school year and other charges when
due and payable for the named student.”

Debtor chose a monthly payment plan, which was to be “administered
by” Smart Tuition. The first clause of the contracts states, “[t]uition is due in
accordance with the payment plan as identified in the earlier section.” The
monthly payment plan—the one Debtor chose, requires the first payment be
made on June 1 of the upcoming academic year. As a result, if a parent
complies with the contract, she will have made the first payment well over
two months before her child begins school, and will theoretically thereafter
make each payment in advance of the month in which her child attends any
classes. The contracts do not describe this transaction as a loan or an
extension of credit, do not contain an acceleration clause, and Debtor did not
sign any promissory notes.8

On July 1, 2012, Creditor placed tuition and fees for the entire 2012-13

8 The enrollment contract states, “The Barstow Schoo1 reserves the right tocancel this Enrolment Contract if the student or family has any unpaid accountwith the Barstow School, including, but not limited to any loan/note under whichyou are bound as borrower/debtor.” This language is not describing the agreementcreated by the contract, which is addressed earlier in the same paragraph.

-44


Case 14-06014 Doc# 36 Filed 09/09/14 Page 4 of 15


school year on bills for Debtor’s children. The same day, entries termed
“SMART Tuition Contract Credit” were credited to the same bills for the
entire amount of the year’s tuition, less any fees already paid. On August 23,
2012, entries termed “SMART Contract Change Terminate SMART Contract
due to not attending school; trf back to student account” were charged to the
same bills in the same amount as the credit from July 1, 2012. These
transactions appear to be part of the Creditor’s process for administering the
monthly payment plan.

The contracts also provided that failure to cancel enrollment, in
writing, by April 1, 2012, would subject the signer to liability for the full
amount of tuition owed. The parties disagree on which date anyone informed
the school that the children would not be attending. Debtor attached an
affidavit to her motion from the children’s father, and he swears to have
orally contacted Creditor in March 2012 to advise of his change in financial
condition necessitating him sending his children, instead, to public schools for
the upcoming 2012-2013 school year. Creditor claims that it received written
notice for the first time in July 2012. There is no dispute that neither of
Debtor’s children attended even a day at Barstow School for the 2012-2013
school year.

Both contracts provided, in the event of default, that Creditor was

-55


Case 14-06014 Doc# 36 Filed 09/09/14 Page 5 of 15


entitled to a recover all interest, charges and fees, including attorneys’ fees,
incurred in the collection of past due amounts. When Debtor failed to make
the payments required, Creditor filed a state court action in January 2013
that it entitled a “breach of contract” action. It sought damages for
nonpayment of the tuition. Creditor did not assert it was a student loan. The
state court entered a default judgment against Debtor for $30,345, plus post-
judgment interest at 10% per annum.

9

In defense of this action, Debtor asserts several arguments thatCreditor insists are waived under the Rooker Feldman doctrine10 because
Debtor did not raise them in the state court proceeding. But the issue I must
decide is whether the arrangement was an education loan, as in §
523(a)(8)(A). The parties agree that question was not addressed in the state
court proceeding and is thus not barred by the doctrine.11 Because the Court

9 Those defenses include the contention that Debtor notified Barstow well in
advance that her children would not attend, that the children received no benefit
due to the fact they never attended class or used Barstow’s resources, and thatBarstow knew of Debtor’s financial condition.

10

Rooker v. Fidelity Trust Company, 263 U.S. 413 (1923); District of Columbia
Court of Appeals v. Feldman, 460 U.S. 462 (1983) (barring a party losing in statecourt from seeking what in substance would be appellate review of the statejudgment by a United States district court).

11 Doc. 33, at 2 (“Barstow concedes that the issues before the State Court didnot address whether such debts were nondischargeable student loans. Such issuewas raised for the first time after Debtor filed for bankruptcy relief.”).

-66


Case 14-06014 Doc# 36 Filed 09/09/14 Page 6 of 15


resolves the case on the basis of this question, the Court need not address
whether the Rooker Feldman doctrine would bar Debtor’s other defenses.

IV. Analysis and Conclusions.
Creditor argues that Debtor’s debt is nondischargeable under 11 U.S.C.
§ 523(a)(8)(A);12 Creditor does not specify which portion of that section forms
the basis of its argument. With some limitations, § 523(a)(8)(A) bars
discharge of

 “(i) an educational benefit overpayment or loan made, insured, orguaranteed by a governmental unit, or made under any programfunded in whole or in part by a governmental unit or nonprofitinstitution; or

(ii) an obligation to repay funds received as an educationalbenefit, scholarship, or stipend.”13
Subsection 523(a)(8)(A)(ii) applies only to funds received by a debtor. As no
funds were received by Debtor in this case, that subsection does not apply,
and indeed Creditor does not appear to base its argument on that subsection.
Subsection 523(a)(8)(A)(i) applies to both educational benefit overpayments
and loans, but Creditor alleges no overpayments here. The Court concludes
that Creditor is thus arguing Debtor’s debt is nondischargeable as an

12 Doc. 1, at 3 (“All such charges and fees, plus interest thereon and attorney'sfees, as reflected by the Judgment, are nondischargeable pursuant to Section523(a)(8)(A) of the Bankruptcy Code.”).

13

 11 U.S.C. § 523(a)(8)(A).
-77


Case 14-06014 Doc# 36 Filed 09/09/14 Page 7 of 15


educational loan made under a program funded in whole or in part by a
nonprofit institution, pursuant to § 523(a)(8)(A)(i).

The parties agree that Creditor is a nonprofit institution and that the
purpose of the underlying contract was for Debtor to pay school tuition for her
childrens’ education. This leaves only the issue whether the arrangement
between Creditor and Debtor is an educational loan within the contemplation
of § 523(a)(8)(A)(i).

In furtherance of the fresh start purpose of bankruptcy, exceptions to
discharge are to be narrowly construed in favor of the debtor,14 and a creditor
seeking to except its claim from discharge must prove the claim is
nondischargeable by a preponderance of the evidence.15

The word “loan” is neither defined in § 523(a)(8)(A) nor anywhere else
in the Bankruptcy Code.16 Words in a statute should be construed in an
ordinary, everyday sense.17 The definition of “loan” is a question of first
impression in this Court, but a U.S. District Court for the District of Kansas

14

 Bellco First Federal Credit Union v. Kaspar (In re Kaspar), 125 F.3d 1358,
1361 (10th Cir. 1997).

15

Grogan v. Garner, 498 U.S. 279, 287 (1991).

16

New Mexico Instit. of Mining and Tech. v. Coole (In re Coole), 202 B.R. 518,
519 (Bankr. D.N.M. 1996) (“The Bankruptcy Code contains no definition of the word‘loan.’”).

17

Chickasaw Nation v. United States, 208 F.3d 871, 876 (10th Cir. 2000).
-88


Case 14-06014 Doc# 36 Filed 09/09/14 Page 8 of 15


has adopted a definition that appears to express the ordinary, everyday sense

of the term:

A loan of money is a contract by which one delivers asum of money to another and the latter agrees to returnat a future time a sum equivalent to that which heborrows. . . . In order to constitute a loan there must be
a contract whereby, in substance one party transfers tothe other a sum of money which that other agrees torepay absolutely, together with such additional sums asmay be agreed upon for its use. If such be the intent ofthe parties, the transaction will be considered a loanwithout regard to its form.18

This definition would permit a court to find the existence of a loan when the

party making the loan delivers a sum of money to the other party, which the

recipient of the funds would have to repay. Even if the money were to go

directly to pay the debts of the receiving party, without passing through the

receiving party’s hands, this definition would permit a court to find that the

transaction qualified as a loan if the agreement between the parties reflects

the existence of an extension of credit that the recipient was obligated to

repay. Absent some intent by both parties to create a loan, however, the

18

Sec. Nat. Bank of Kansas City, Kan. v. Continental Ins. Co., 586 F. Supp.
139, 151 (D. Kan. 1982) (citing In re Grand Union Co., 219 F. 353, 356 (2d Cir.
1915)). In re Coole would adopt an even more stringent reading, requiring thatmoney change hands between the a plaintiff and a defendant, 202 B.R. at 519. But
that definition appears to be too restrictive, because it would eliminate those loanswhere the loan maker pays a debt directly on the recipient’s behalf.

-99


Case 14-06014 Doc# 36 Filed 09/09/14 Page 9 of 15


transaction cannot be considered a loan.19

The Court notes that this definition mirrors the definition used by the
Second, Third and Seventh Circuit Courts of Appeal. The Seventh Circuit
explains the concept most concisely: “nonpayment of tuition qualifies as a
loan in two classes of cases: where funds have changed hands, or where there
is an agreement whereby the college extends credit.”20 The Eighth Circuit
appears to endorse a similar definition, and these circuits appear to be the
only circuits to address this particular question in any detail.21

Under this definition, even viewing the evidence and all reasonable
inferences therefrom in the light most favorable to Creditor, the contracts in
this case did not create loans for two reasons. First, the transactions were not
structured as loans, because there is no suggestion that Creditor is advancing
Debtor money to make the tuition payments. Second, the contracts and
associated documents provide no evidence that the parties had the intent to
create a loan.

The agreement between Creditor and Debtor does not create a loan or a

19 Id.

20

In re Chambers, 348 F.3d 650, 657 (7th Cir. 2003) (citations, alterations,
and quotation marks omitted). See also Cazenovia College v. Renshaw (In re
Renshaw), 222 F.3d 82, 89–90 (2d Cir. 2000) and Boston Univ. v. Mehta (In re
Mehta), 310 F.3d 308 (3d Cir. 2002).

21

HHS v. Smith, 807 F.2d 122, 124 (8th Cir. 1986).
-1100


Case 14-06014 Doc# 36 Filed 09/09/14 Page 10 of 15


transaction that has the form of a loan. There is no reference to a deferral of
due payments or paying payments due at the time of the contract at a later
date. Instead, the contractual language allowed Debtor to select a payment
plan. The contract further states that tuition payments were due according to
the payment plan.

Debtor selected a monthly payment plan, and so according to the
contract’s internal logic, tuition payments became due only on a monthly
basis. Nothing in the contract indicates a deferral of payment or any kind of
credit arrangement between Debtor and Creditor. Further, monthly plan
payments were to begin June 1, while the school year was to begin August 15.
So, contrary to a deferral of payment, the contract contemplated that Debtor’s
payments would actually precede the receipt of educational services.

Under these undisputed facts, Creditor was not paying tuition for
Debtor and then allowing Debtor to repay Creditor over time; rather, Creditor
and Debtor agreed tuition payments would be paid in advance, on a monthly
schedule. There was no credit given by Creditor. The undisputed facts show
the agreement between the parties had neither the form nor the substance of
a loan.

Further, there is no evidence that the parties sought to create a loan
with the contracts in question. The agreements do not describe the

-1111


Case 14-06014 Doc# 36 Filed 09/09/14 Page 11 of 15


arraignment as a “loan” or “extension of credit,” and there is no suggestion in
the agreements that Creditor was advancing Debtor any funds or other
benefits. And Debtor signed no promissory note. The only use of the terms
“loan” or “note” in the enrollment contract comes in a sentence immediately
after the contract describes what would happen if the Debtor failed to make
the payments described in the contract. Thus, the contract provides a remedy
for a breach of the contract due to Debtor’s failure to make payments which is
separate from the remedy “if the student or family has any unpaid account
with the Barstow School, including, but not limited to any loan/note under
which you are bound as borrower/debtor.”22 Juxtaposing these remedies
further demonstrates that the contract itself did not create a loan agreement.
Again, on their face, the agreements and the associated documents do not
suggest that the parties intended to create a loan agreement.23

The Court notes that Creditor’s internal accounting entries on the bills
for Debtor’s children appear to run contrary to the agreed contractual

22 Doc. 24, at 23.

23

Ray v. Univ. of Tulsa, Works & Lentz, Inc (In re Ray), 262 B.R. 544, 550
(Bankr. N.D. Okla. 2001) (refusing to find a loan absent a promissory note or otherevidence that the parties intended to create a loan agreement). This is not to saythat an arrangement like the one here could never constitute a loan. If the contractcalled for prepayment of the entire year’s tuition, for example, and then clearlystated that Creditor or a third party was making a loan to Debtor for the cost oftuition, and that the monthly payments were to repay that loan—not to pay tuitionwhen it came due, then such an arrangement might qualify as a loan.

-1122


Case 14-06014 Doc# 36 Filed 09/09/14 Page 12 of 15


language. There, Creditor charges the full year’s tuition on July 1, with the
label “Smart Tuition pay plan.” Smart Tuition then immediately credits a
year of tuition to the accounts. While this entry might suggest an extension of
credit, it is not an agreement between Debtor and Creditor, it is contrary to
the terms of the contract since it actually required Debtor to pay for the
educational benefit in advance, and there is no evidence in the record that
Debtor agreed to an extension of credit. In contrast, the contract between
Debtor and Creditor merely states that monthly payments are to be
administered by Smart Tuition, not that Debtor agrees to an extension of
credit from Smart Tuition. The Creditor’s conflicting internal accounting
practices cannot transform a contractual debt into a student loan.

Creditor argues for a more expansive definition of the term “loan,” but
Creditor fails to cite any case where a court has found the existence of a loan
absent a signed promissory note or other evidence of the parties’ mutual
intent to create a loan agreement. Creditor relies on Gakinya v. Columbia

24 25

College (In re Gakinya), Roosevelt University v. Oldham (In re Oldham),
and McKay v. Vanderbilt University (In re McKay),26 but the facts in those

24 364 B.R. 366, 373 (Bankr. W.D. Mo. 2007).

25 220 B.R. 607, 612 (Bankr. N.D. Ill. 1998).

26 66 B.R. 144, 148 (D. Or. 2007).

-1133


Case 14-06014 Doc# 36 Filed 09/09/14 Page 13 of 15


cases are all materially distinguishable from the facts here. For example, the
students in In re Gakinya and In re Oldham both signed promissory notes,
and the contract in In re McKay expressly discussed the school’s “extension of
credit.” Creditor provides no statutory or case law support for its argument
that a failure to pay tuition when due, absent any additional factors
suggesting the parties contemplated a loan agreement, creates a student loan
obligation.

Attorney Fees

Debtor has requested an award of attorney’s fees in her summary
judgment motion, but she does not indicate the statutory or other basis for
that relief. When she filed her answer to Barstow’s complaint, she asked for
those fees pursuant to Federal Rule of Bankruptcy Procedure 90ll(b). But she
has not followed the prerequisites for obtaining a fee award required by Rule
9011(c) In addition, no binding precedent existed in this Circuit defining an
educational loan, and Creditor’s argument for a broad definition was not
entirely unfounded. As a result, the Court denies Debtor’s request for fees
both procedurally and because Creditor’s arguments were at least based on a
nonfrivolous extension of current law, which also precludes an award of

-1144


Case 14-06014 Doc# 36 Filed 09/09/14 Page 14 of 15


attorney’s fees under Rule 11.27

Conclusion

Because the debt in question is not a student loan within the meaning
of 11 U.S.C. § 523(a)(8), that statute does not prevent the discharge of this
debt, and it will be discharged. Debtor’s Motion for Summary Judgment is
thus granted but without an award of attorneys’ fees, and Creditor’s motion is
denied.

# # #

27 To the extent that Debtor seeks fees under 11 U.S.C. § 523(d), the Courtnotes that such an award is permitted only “[i]f a creditor requests a determinationof dischargeability of a consumer debt under subsection (a)(2) of this section, andsuch debt is discharged.” 11 U.S.C. § 523(d). Congress’s decision to explicitly allowfee awards when debtors prevail against a § 523(a)(2) action suggests that feeawards are not contemplated when a creditor loses dischargeability complaintsbased on other subsections of § 523.

-1155


Case 14-06014 Doc# 36 Filed 09/09/14 Page 15 of 15

14-20526 O'Dell (Doc. # 23)

In Re O'Dell, 14-20526 (Bankr. D. Kan. Aug. 22, 2014) Doc. # 23

PDFClick here for the pdf document.


SO ORDERED.
SIGNED this 22nd day of August, 2014.


___________________________________________________________________________
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS

In re: Case No. 14-20526
Teresa L. O’Dell, Chapter 7

Debtor.

Order Denying Motion to Reopen

Debtor filed a chapter 7 bankruptcy petition on March 14, 2014,1 and the
Chapter 7 Trustee assigned to her case entered a no-asset notice shortly thereafter, on
April 17, 2014.2 Debtor received a discharge on June 25, 2014,3 and her bankruptcy
case was closed. About a month after her discharge was entered, on July 31, 2014,
Debtor filed a motion to reopen her case, explaining that she had inadvertently omitted
certain medical and utility debts totaling $9400.79 from her original petition.4

1 Doc. 1.
2 Seedocket entry dated April 17, 2014 (Chapter 7 Trustee’s Report of No


Distribution).

3 Doc. 11.

4 Doc. 14.

Case 14-20526 Doc# 23 Filed 08/22/14 Page 1 of 3


Under 11 U.S.C. § 350(b), a court should only reopen a case “to administer

assets, to accord relief to the debtor, or for other cause.” In a no-asset chapter 7 case,

however, no relief can be given to a debtor by reopening case to add prepetition debt

“because reopening affords no more relief to the debtor than the debtor already has

obtained by virtue of the discharge under Section 727.”5 As described by the Tenth

Circuit Court of Appeals in Watson v. Parker (In re Parker):6

Pursuant to § 727(b), the Debtor receives a discharge from all debts thatarose before the date of the order for relief under Chapter 7, regardlessof whether a proof of claim based on any such debt or liability is filed,
unless an exception in 523(a) applies. Under § 523(a)(3)(A), a claim willnot be discharged if it was neither listed nor scheduled and the creditordid not have notice or actual knowledge of the case so that the creditorcould timely file a claim. Here the bankruptcy court correctly found that
§ 523(a)(3)(A) does not apply because the Debtor's Chapter 7 case was ano asset case with no claims bar date set; . . . Because § 523(a)(3)(A) does
not apply, unless [the creditor] can establish that the claim wasnondischargeable under one of the exceptions referenced in § 523(a)(3)(B)
[the creditor’s] Claim was discharged by operation of law under § 727(b).

5 In re Cerrudo, 214 B.R. 500, 502 (Bankr. N.D. Okla. 1997) (“[I]n a no-assetchapter 7 case, unscheduled debts are not excepted from discharge by virtue ofSection 523(a)(3) unless the debt would be non-dischargeable under one of theintentional tort exceptions contained in Section 523(a)(2), (4), or (6). Pursuant toSection 727(b), an unscheduled debt in a no-asset chapter 7 case is dischargedunless the debt could have been found to be non-dischargeable under theintentional tort exceptions if the creditor had been given an opportunity to timelyseek such relief. For these reasons, it is generally a useless exercise to reopen a caseto schedule an unscheduled debt, because reopening affords no more relief to thedebtor than the debtor already has obtained by virtue of the discharge underSection 727.”).

6 313 F.3d 1267, 1268–69 (10th Cir. 2003) (quoting Watson v. Parker (In re
Parker), 264 B.R. 685, 694 (10th Cir. BAP 2001)); see also Judd v. Wolfe, 78 F.3d
110 (3d Cir.1996) (and cases collected therein); Stone v. Caplan, 10 F.3d 285, 289
(5th Cir.1994); Beezley v. California Land Title Co., 994 F.2d 1433 (9th Cir.1993).

-2


Case 14-20526 Doc# 23 Filed 08/22/14 Page 2 of 3


As such, there is no cause to reopen Debtor’s case. No relief can be given here because
this is a no-asset case and reopening would afford debtor no more relief than she has
already received.

Debtor’s motion to reopen is denied. The prepetition debts Debtor seeks to add
to her case, to the extent dischargeable if they had been listed on her chapter 7 petition
when filed, are discharged anyway.

IT IS SO ORDERED.

# # #

-3


Case 14-20526 Doc# 23 Filed 08/22/14 Page 3 of 3

11-40483 Butler (Doc. # 63)

In Re Butler,11-40483 (Bankr. D. Kan. Sep 5, 2014) Doc. # 63

PDFClick here for the pdf document.


SO ORDERED.
SIGNED this 5th day of September, 2014.

 

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re: Case No. 11-40483
Edward George Butler, Chapter 13

Debtor.

Order Denying Debtor’s Motion to Limit Notice of
Motion for Entry of Discharge


 Debtor Edward George Butler (“Debtor”) filed a Motion to Limit Notice
of his Motion for Entry of Discharge,1 apparently to save mailing costs, and
accompanied it with a one sentence declaration stating he did not seek to
exempt any of the property listed in 11 U.S.C. § 522(p)(1). In following this
procedure, Debtor appears to be relying on dicta contained in footnote 17 of a
recent decision in In re Church, Case No. 12-40210,2 a case where the same

1 Doc. 54.
2 That decision is Doc. 114 of the Church docket sheet, dated June 11, 2014.


Case 11-40483 Doc# 63 Filed 09/05/14 Page 1 of 4


counsel represented debtor Church in a similar quest. That footnote
suggested there might exist some fact pattern under which notice to all
creditors would not be required.

In this case, after hearing argument of counsel on this motion on July
24, 2014, I denied the motion. First, I held that the notice procedure used by
this Debtor was deficient because the one sentence declaration too generically
stated that Debtor did not seek to exempt any of the property listed in §
522(p)(1). I have my doubts that many debtors would actually know what §
522(p)(1) provides, making the declaration superficial. At a minimum, a
debtor would need to indicate in the substance of the declaration that he/she
is not exempting the specific items in question: a homestead, a burial plot, a
co-op that owns property used as a residence, or any real or personal property
used as a residence. In addition, a debtor would need to attach his last filed
schedule of exemptions to his declaration or affidavit—confirming it is his/her
last one—to make the declaration more meaningful for the debtor to sign and
easier for interested parties to review.

I also agreed with the Trustee's argument that even if this Debtor had
filed a meaningful affidavit regarding § 522(p)(1), Debtor’s proposed
procedure would not satisfy me concerning the statutory requirements
contained in § 1328(a) that a debtor also confirm at least that 1) he is current

-2


Case 11-40483 Doc# 63 Filed 09/05/14 Page 2 of 4


on domestic support obligations, 2) that he has paid any direct payment his
plan required, and 3) that there is no reasonable cause to believe that §
522(q)(1), dealing with certain felony convictions or securities or other listed
violations, may be applicable to the debtor, pursuant to § 1328(h). Without
such certifications, and perhaps others, a debtor may not be entitled to a
discharge. As a result, merely addressing § 522(p)(1) satisfies only part of the
obligations a debtor must complete— and certify he has completed— before
he can receive a discharge.3 In sum, I am now much less convinced than I was
when I wrote footnote 17 in In re Church that any circumstance might exist
where notice to all creditors should be limited. Creditors should be entitled to
challenge whether a debtor has or has not complied with the obligations
required to obtain a discharge, and without notice to all creditors, they would
be unable to evaluate the accuracy of a debtor’s claim to be entitled to a
discharge.

Further, and as a practical matter, it seems unlikely it is less expensive
to simply mail a copy of the Motion for Entry of Discharge to the matrix than
it is to draft and have a debtor complete a properly detailed affidavit, draft
and file a proper motion to limit notice, and draft the appropriate order,

3 To see the various certifications a debtor is required to make, see Form 283that Debtor has now filed in this case at Doc. 58.

-3


Case 11-40483 Doc# 63 Filed 09/05/14 Page 3 of 4


assuming facts existed to grant it.

Orders Procedure

The decision on the motion to limit notice was issued orally, and when
no order was received as a result of those findings, the Clerk published a
Notice of Order Due to both counsel. Instead of providing the required order,
Debtor’s Attorney attempted to simply withdraw the motion on which I had
already ruled.4 One cannot withdraw a motion after one has already lost on
the merits of that motion.

Accordingly, I strike the notice of withdrawal, and enter this order
denying Debtor’s Motion to Limit Notice of the Motion for Entry of Discharge,
for the reasons set forth in In re Church, Case 12-40210, and because the
obligations required of a debtor seeking entry of discharge go beyond merely
addressing § 522(p)(1). The procedure Debtor wishes to use also places undue
burden on the Clerk, the Judge, and the Trustee, and I decline to sanction
this approach.

IT IS THEREFORE ORDERED THAT Debtor’s Motion to Limit
Notice of the Motion for Entry of Discharge is denied.
IT IS SO ORDERED.
# # #

4 Doc. 61.

-4


Case 11-40483 Doc# 63 Filed 09/05/14 Page 4 of 4

 

12-40210 Church (Doc. # 114)

In Re Church, 12-40210 (Bankr. D. Kan. Jun. 12, 2014) Doc. # 114

PDFClick here for the pdf document.


 

SO ORDERED.
SIGNED this 11th day of June, 2014.


___________________________________________________________________________
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re: Case No. 12-40210
Lisa Marie Church, Chapter 13
Debtor.

Order Continuing Debtor’s Motion for Entry of Discharge

Debtor Lisa Marie Church’s attorney has requested this Court abrogate the
requirement in this division that debtors file and serve on creditors a motion for entry
of discharge upon completion of plan payments in Chapter 13 bankruptcy cases.
Because the Court finds that both the Bankruptcy Code and Federal Rules of
Bankruptcy Procedure generally require notice of such a motion to creditors with an
opportunity to object, and a hearing if an objection is filed, this request is denied.

I. Background and Procedural Facts
Debtor’s Chapter 13 bankruptcy petition was originally filed in the Kansas City
division of this court in October 2009, as a joint case with her then-husband, Jeffrey

Case 12-40210 Doc# 114 Filed 06/11/14 Page 1 of 10


Church.1 About two years later, Debtor and her husband divorced, and Debtor’s case
was transferred to the Topeka division.2 On March 6, 2014, the Clerk of the Court
issued its routine Notice to Chapter 13 Debtor(s) to Verify Filing of Statement of
Completion of Personal Financial Management Course (“FMC”).3 This Notice was the
Court’s third reminder to Debtor that if she failed to file the statement, she would not
receive a discharge, notwithstanding any later completion of plan payments.4

Soon thereafter, on March 10, Debtor did complete the course, but did not
contemporaneously file the required Certificate to demonstrate that fact.5 On March
27, she filed a “Certification of Compliance and Motion for Entry of Discharge,”6
certifying that “[all] payments have been completed under the terms of Debtor’s
confirmed Chapter 13 Plan;” the motion omitted any reference to her completion of the
required course.

The Trustee objected to Debtor’s motion, claiming it was premature as the case

1 Doc. 1.

2 Doc. 33; Doc. 37; Doc. 43.

3 Doc. 100.

4 Doc. 7 was the first such notice, dated October 20, 2009. Doc. 18 was the second
such notice, dated April 19, 2010. Doc. 100, dated March 6, 2014, is the third notice. Theseredundant notices have been formulated because the Court never wishes to have a debtor
complete a plan but be denied a discharge because of failure to complete the myriadprocedural steps required by Congress.

5 Debtor finally filed that Certificate of Debtor Education, whereby HummingbirdCredit Counseling and Education certified Debtor had completed the required course, onMay 20, 2014. See Doc. 112.

6 Doc. 104.

-2


Case 12-40210 Doc# 114 Filed 06/11/14 Page 2 of 10


was “not yet complete.”7 At the hearing that followed, Debtor’s attorney admitted he
filed the motion prematurely and “inadvertently,” since payments were not complete
and Debtor had failed to file her FMC certificate.8 Notwithstanding the Trustee’s
willingness to simply continue the hearing on the Debtor’s Motion until such time as
she had completed plan payments and filed her FMC certificate, Debtor’s attorney
wished to instead advance the argument that he was either not required to file the
Motion for Entry of Discharge that was already on file, and of which he had already
provided notice, or that he was not required to give notice of that Motion to Debtors’
creditors.

Although the issue is clearly moot here, because counsel has already done what
he claims he is not required to do—send notice to the matrix, the Court asked for the
parties to brief the issue so that it could consider this potentially recurring issue.
Briefing is complete, and this side issue is ripe to allow the Court to provide guidance
to the parties.

II. Analysis
There is no dispute that Debtor seeks a discharge under 11 U.S.C. § 1328(a),9
which states in pertinent part:

7

 Doc. 105.

8

 Doc. 113.

9 All citations are to the Bankruptcy Code, 11 U.S.C. 101 et seq. Due to an apparentmis-cite, both parties initially discussed a discharge under subsection (b) of § 1328, whichdeals with so-called “hardship discharges.” The parties appear to now agree that dischargein this case is sought under § 1328(a).

-3


Case 12-40210 Doc# 114 Filed 06/11/14 Page 3 of 10


. . . as soon as practicable after completion by the debtor of allpayments under the plan, and in the case of a debtor who is required bya judicial or administrative order, or by statute, to pay a domestic supportobligation, after such debtor certifies that all amounts payable undersuch order or such statute that are due on or before the date of the
certification (including amounts due before the petition was filed, butonly to the extent provided for by the plan) have been paid, unless thecourt approves a written waiver of discharge executed by the debtor afterthe order for relief under this chapter, the court shall grant the debtor adischarge of all debts provided for by the plan or disallowed under section502 of this title . . .

In order to receive a discharge under § 1328(a), debtors must complete all payments

due under their Chapter 13 plans and file the appropriate certification concerning

domestic support obligations. Additional prerequisites to receiving a discharge are

found in § 1328(f), which sets limits on the time periods for receiving a discharge,10 and

in § 1328(g), which requires that a debtor complete an instructional course in personal

financial management.11

As noted, Debtor admits she did not qualify for discharge under § 1328(a) when

she filed her motion because she had not yet completed all payments required by her

chapter 13 plan. Once Debtor completes her plan payments, however, the Trustee

apparently has no opposition to Debtor’s motion for discharge.

10 § 1328(f) (“[T]he court shall not grant a discharge . . . if the debtor has received adischarge– – (1) in a case filed under chapter 7, 11, or 12 of this title during the 4-yearperiod preceding the date of the order for relief under this chapter; (2) in a case filed underchapter 13 of this title during the 2-year period preceding the date of such order.”). TheTrustee does not argue this subsection controls here.

11 § 1328(g)(1) (“The court shall not grant a discharge under this section to a debtorunless after filing a petition the debtor has completed an instructional course concerningpersonal financial management described in section 111.”). Because Debtor has finally filedthe required certification, the Trustee no longer contends this subsection controls here.

-4


Case 12-40210 Doc# 114 Filed 06/11/14 Page 4 of 10


Debtor’s attorney, however, raises a larger issue—he believes that no debtor
should have to ever file a motion for discharge, or that the Trustee should not be
allowed to object to the motion—contending that the motion “is a nuisance and a waste
of time and resources.” Counsel argues, as a practical matter, that many of the notices
sent to the mailing matrix at the end of a case are returned as undeliverable, as
creditors are sold, merge, or change their addresses over the course of a chapter 13
plan. Debtor’s attorney contends, as a legal matter, that neither the Bankruptcy Code
nor the Federal Rules of Bankruptcy Procedure require a debtor to file such a motion,
or notify creditors, and that this Court should so decree to save time and money for
future debtors.

The Trustee responds by citing to § 1328(h), which contains additional
restrictions to granting a discharge. It states that

The Court may not grant a discharge under this chapter unless the court

after notice and a hearing held not more than 10 days before the date

of the entry of the order granting the discharge finds that there is no

reasonable cause to believe that – –

(1) section 522(q)(1) may be applicable to the debtor; and
(2) there is pending any proceeding in which the debtor may befound guilty of a felony of the kind described in section522(q)(1)(B).12
Under this subsection, a discharge cannot be granted until the Court determines the
applicability of § 522(q)(1). Section 522(q)(1), added to the Code with the broad
BAPCPA revisions in 2005, places a monetary cap on a residence, burial exemptions

12 Emphasis added.

-5


Case 12-40210 Doc# 114 Filed 06/11/14 Page 5 of 10


and homestead exemptions when certain qualifying factors are met.13 Subsection (h),

therefore, requires the Court to make a determination regarding the applicability of

§ 522(q) before it can enter a discharge. But no Court can make this determination

without assistance from debtors, trustees, and creditors. The Court simply does not

have the facts necessary to support such a determination without input from these

parties. And, more pertinent to the discussion at hand, the way these parties receive

notice that the Court needs to make such a determination is by providing those

interested parties with notice and an opportunity to object, which is provided when a

13 The text of § 522(q) reads:
(q)(1) As a result of electing under subsection (b)(3)(A) to exempt property underState or local law, a debtor may not exempt any amount of an interest inproperty described in subparagraphs (A), (B), (C), and (D) of subsection (p)(1)
which exceeds in the aggregate $155,675 if-


(A) the court determines, after notice and a hearing, that the debtor hasbeen convicted of a felony (as defined in section 3156 of title 18), whichunder the circumstances, demonstrates that the filing of the case was anabuse of the provisions of this title; or
(B) the debtor owes a debt arising from-(
I) any violation of the Federal securities laws (as defined insection 3(a)(47) of the Securities Exchange Act of 1934), any Statesecurities laws, or any regulation or order issued under Federalsecurities laws or State securities laws;
(ii) fraud, deceit, or manipulation in a fiduciary capacity or inconnection with the purchase or sale of any security registeredunder section 12 or 15(d) of the Securities Exchange Act of 1934or under section 6 of the Securities Act of 1933;
(iii) any civil remedy under section 1964 of title 18; or
(iv) any criminal act, intentional tort, or willful or recklessmisconduct that caused serious physical injury or death toanother individual in the preceding 5 years.
(2) Paragraph (1) shall not apply to the extent the amount of an interest inproperty described in subparagraphs (A), (B), (C), and (D) of subsection (p)(1) isreasonably necessary for the support of the debtor and any dependent of thedebtor.
(internal footnote omitted).

-6


Case 12-40210 Doc# 114 Filed 06/11/14 Page 6 of 10


debtor schedules a hearing on a motion for entry of discharge, if anyone objects.

Debtor’s attorney argues that no debtor should be burdened with providing this
notice, and further argues that it is unlikely creditors would have access to § 522(q)
information. From those arguments, Debtor’s attorney concludes that providing notice
to all creditors is therefore wasteful in these circumstances. But the Code requires that
the Court make this determination. Although it is true that generally the motion for
discharge, and the § 522(q) certifications made therein, go unchallenged, the Court has
no ready access to this kind of information, and cannot easily determine on its own
whether a debtor’s certification should be challenged. The only way to potentially
discover whether, for example, a debtor has been convicted of an intentional tort that
caused physical injury, is to notify all creditors and see if any creditor steps up to say
the debt owed them arose from those circumstances. The same applies to each of the
categories contained in § 522(q). And who would be better than the creditors a debtor
presumably listed in her schedules, hoping to discharge those debts, to provide the
value of debtor’s homestead, or information about a debtor’s conviction history,
securities violations, etc.?

In addition, as the Trustee notes, Federal Rule of Bankruptcy Procedure
2002(f)(11), which was added in 2008, also requires notice by mail of “the time to
request a delay in the entry of discharge under §§ 1141(d)(5)(C), 1228(f), and 1328(h).”
Rule 2002(f)(11) requires that this notice be given to “the debtor, all creditors, and

-7


Case 12-40210 Doc# 114 Filed 06/11/14 Page 7 of 10


indenture trustees.”14 And the notice that is required can either be given by “the clerk,
or some other person as the court may direct.” In this district, the debtor has been
directed to give this notice by filing, and serving notice of, the motion for entry of
discharge.

Debtor’s attorney does not seriously dispute that Rule 2002(f)(11) requires notice
to creditors; he merely argues that such rule is not fair. This argument is not well
taken.

First, Debtor is the party seeking a discharge. It is wholly logical that Debtor be
the one required to take the necessary steps (and incur the expense, unfortunately) to
obtain that discharge. Second, Debtor is the party required to create a creditor matrix
at the beginning of the case. It again is logical for Debtor to use the matrix she created
(and updated throughout the case if she is advised that her own creditor addresses are
defective or no longer valid) to send notice of her motion for entry of discharge, as she
has easy access to the addresses. Burdening the Court, and by extension, the
taxpayers, with the cost of such a notice to creditors is untenable.

Both the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure
require notice prior to entry of discharge. Although oftentimes that notice to creditors
will not yield an objection, the Code and Rules mandate that opportunity to object be
provided.15 While the attorney’s desire to keep costs low for his future clients is both

14 Emphasis added.

15 As the commentary to Federal Rule of Bankruptcy Procedure1007(b)(8)—another Rule dealing with the § 522(q) proscriptions—states, creditors must begiven the opportunity to challenge a debtor’s § 522(q) certification. See Fed. R. Bankr. P.

-8


Case 12-40210 Doc# 114 Filed 06/11/14 Page 8 of 10


admirable and understandable, reduction of expenses cannot be achieved through a
degradation of the requirements Congress has imposed.16

III. Conclusion
The Trustee requests that the Court overrule Debtor’s Motion for Entry of
Discharge because even Debtor admits it was prematurely filed since she had not
finished her plan payments or filed her FMC certificate when she filed the motion.
Alternatively, the Trustee requests continuance of Debtor’s Motion for Entry of
Discharge until such time as the Trustee dockets a Notice of Completion of Plan
Payments. The Court elects to continue Debtor’s Motion to a hearing on July 1, 2014,
at 9:00 a.m., at which time the issue will be whether the Motion is still premature. If
the Trustee, the only objecting party in interest, believes Debtor has completed all
steps to obtain a discharge by that date, he may elect to place the matter on the “nocall”
list, with Debtor submitting the agreed order.

Although Debtor has already filed and served on her creditors the motion for
entry of discharge upon completion of plan payments, her request for a declaration that
she need not similarly notify her creditors in any future cases she may file is denied.17

1007, 2008 Amendments, cmt. to subdivisions (b)(3) to (b)(8) (“Creditors receive noticeunder Rule 2002(f)(11) of the time to request postponement of the entry of the discharge topermit an opportunity to challenge the debtor’s assertions in the Rule 1007(b)(8) statementin appropriate cases.”).

16 The Trustee cites examples from other districts where a motion for entry ofdischarge is required, and calls the practice “prevalent nationwide.”

17 Before ultimately praying for a complete bar, Debtor’s attorney seemed to suggesta lesser remedy—that when a debtor is not exempting the kinds (and amounts) of propertylisted in § 522(q), that a debtor should not have to mail notice to the entire matrix because §

-9


Case 12-40210 Doc# 114 Filed 06/11/14 Page 9 of 10


It is so ordered.

# # #


1328(h) does not come into play. An analogous situation is found in Fed. R. Bankr. P.
3015(g), when a debtor can file a motion to obtain permission to limit notice of a modifiedplan only to those creditors impacted by the modified plan. Although nothing similar isprovided in the Rules related to motions for entry of discharge, if a debtor was claimingnone of the exemptions contained in § 522(p)(1), such that a contest about property valuesor the debtor’s criminal or other history would never come into play, the Court may considerentertaining a motion to limit notice of the motion for entry of discharge, if accompanied bya sworn declaration or affidavit signed by the debtor, swearing that he does not seek toexempt any of the property listed in § 522(p)(1). This is not the case to decide if such anexception is appropriate, both because the notice has already been provided and becausethis Debtor has claimed one of the exemptions listed in § 522(p)(1).

-10


Case 12-40210 Doc# 114 Filed 06/11/14 Page 10 of 10



You are here: Home